WAGES & UNEMPLOYMENT PART II Chapter 6

Collecting Employment Statistics  How do we collect these Statistics?  Bureau of Labor Statistics surveys about 60,000 randomly selected households each month.  Each individual over 16 either Employed, Unemployed, or Out of the Labor Force

Civilian Labor Force  The Civilian Labor Force is the total number of employed and unemployed people in the economy

Civilian Labor Force

Civilian Unemployment Rate  The civilian unemployment rate is the percentage of those in the civilian labor force who are not employed, but are either looking for employment or have looked in the last four weeks.

Civilian Unemployment Rate Continued civilian unemployment rate = civilian labor force – employed X 100% civilian labor force

Unemployed

Civilian Unemployment Rate

Labor Force Participation Rate The labor force participation rate is the percentage of the working age population in the labor force. The labor force includes both those working and those looking for work.

Labor Force Participation Rate

Duration The length of an unemployment spell is called the duration of unemployment. The unemployment spell begins when the worker becomes unemployed and ends when the worker becomes employed or leaves the labor force.

Duration

Requirements to be included in the Civilian Labor Force 1) A civilian 2) Over 16 years of age 3) Employed—working 4) Unemployed—looking for work or have looked for work in the last four weeks

Problems with Measured Unemployment 1) Involuntary part-time employment 2) Discouraged workers 3) Underemployment 4) False information

1) Involuntary Part-time Employment  Part time employment—part time workers are counted as being fully employed. However, many part time workers wish to work full time, but can’t find suitable full time work or are on short hours for a temporary period.  Involuntary part time workers who wish to work full time are not “fully” employed. However, they are counted as fully employed.  Result: The level of employment is overstated and the unemployment rate is understated.

2) Discouraged Workers  Discouraged workers—individuals who, after unsuccessfully seeking employment, become discouraged and drop out of the labor force. These people would accept employment if it were offered, but have simply given up looking. Four (4) weeks after they stop looking for work, they drop out of the official labor force.

2) Discouraged Workers Continued  Result: The level of unemployment and the unemployment rate are understated.  There are many more discouraged workers during recession than expansion.

January 2008  The official unemployment rate in January 2008 was 4.9%.  According to Bureau of Labor Statistics, if involuntary part-time workers and discouraged workers were counted as unemployed, the unemployment rate would have been 9%.

3) Underemployment  Underemployment—resources inefficiently used because individuals are not employed in “optimal” jobs.  Result: The level of unemployment and the unemployment rate are understated.

4) False Information  People claim to be looking for work, but who are not looking for work. These people are counted as being unemployed, even though they are not seeking employment.  Result: The level of unemployment and the unemployment rate are overstated.  Reasons: Unemployment compensation or welfare benefits may depend on “actively” seeking employment.

4) False Information  People claim to be unemployed, but are actually working.  Result: Overstates the level of unemployment and the unemployment rate.

Reasons: Underground Economy 1) Person who is employed, but claims to be unemployed to avoid taxes. The job itself is in some legal activity. 2) Person who is employed in some illegal profession.

Alternative Measures?  U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force  U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force  U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)  U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force

Alternative Measures?  U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force  U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force  NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job- market related reason for not currently looking for work

Alternative Measures? Unemployment Measures (Seasonally Adjusted) Jan-11Sep-11Oct-11Nov-11Dec-11Jan-12 U U U U U U

U3 Unemployment RateU6 Unemployment Rate 16.7% National 9.6% National 21.1 Michigan 13.1% Michigan U6 – Total unemployment, plus all marginally attached workers, plus total employed part time for economic reasons. ||||| U3 – Total unemployed as a % of the civilian labor force. Alternative Measures?

Geography of a Recession mediafinal.html

Types of Unemployment 1) Frictional 2) Cyclical 3) Structural 4) Seasonal

Frictional Unemployment Frictional unemployment—the short-term unemployment associated with the process of matching workers with jobs. Frictionally unemployed workers are not unemployed in the long term.

Cyclical Unemployment Cyclical unemployment—the extra unemployment that occurs during periods of recession.

Structural Unemployment Structural unemployment—the long-term and chronic unemployment that exists even when the economy is producing at a “normal” rate. These individuals are unemployed for the long term.

Structural Unemployment: Reasons  Lack of skills  Language barriers  Discrimination  Economic change that creates a long-term mismatch between skills and available jobs.

Seasonal Unemployment Seasonal unemployment—some occupations require workers during only part of the year.

Impediments To Employment  Minimum Wage Laws  Labor Unions  Unemployment Insurance  Others

Minimum Wage Laws

Labor Unions  Labor union benefits  Reduced worker exploitation  Support progressive labor legislation  Increase productivity  Promote democracy in the workplace

 Labor union costs  Introduces inefficiency into competitive markets  May keep companies from competing globally  Increase labor supply in non-union sector  Decreases wages for non-union workers

Unemployment Insurance  Government transfer payments to help unemployed workers.  Helps to reduce the costs of unemployment  May give the unemployed an incentive to search longer and less intensely  To work efficiently, unemployment benefits should  Be for a limited time  Be Less than the income received when working

Unemployment Spell Vs Duration  Unemployment Spell: The period during which an individual is continuously unemployed.  Duration of unemployment: The length of the unemployment spell.

 KALAMAZOO - PORTAGE (Kalamazoo, Van Buren counties)  Nov 2011 Dec 2011 Civilian Labor Force 166, ,100 Total Employment 154, ,500 Unemployment 11,400 12,700 Rate (percent)

Unemployment Rates for States Monthly Rankings Seasonally Adjusted Dec  Ranks:  1. North Dakota - 3.3%  2. Nebraska - 4.1%  ….  41. Michigan %  …  50. California %  51. Nevada %

Michigan Unemployment Rate (Seasonally Adjusted)

Question  Data for an economy shows that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working-age population in this economy?  333 million  1.20 billion  500 million  800 million

Labor force Defn:  Labour force is a region's combined civilian workforce, including both the employed and unemployed.  The labor force of a country consists of :  everyone of working age (above age 16 and below retirement around 65) who are participating workers, that is people actively employed or seeking employment.

Labor force participation The labor force participation rate is the percentage of the working age population in the labor force. The labor force includes both those working and those looking for work.

People not part of the labor force  People not counted include:  students,  retired people,  stay-at-home parents,  people in prisons or similar institutions,  people employed in jobs with unreported income,  Discouraged workers who cannot find work.